Pushing back on exorbitant drug prices

The Center for American Progress has released a report that includes an arresting suggestion for controlling the prices of prescription drugs.

Under the Bayh-Dole Act, in certain circumstances, the federal government may exercise its “march-in rights” to license patents that resulted from federally funded research but that are now owned by drug companies. These rights apply when a drug company has not achieved “practical application” of the research—meaning that its benefits are not “available to the public on reasonable terms.” They also apply when “action is necessary to alleviate health or safety needs.” Thus, if a drug company is not charging a reasonable price for a drug, or if its pricing harms public health by substantially restricting access to the drug, the federal government is well within its rights to ensure the availability of cheaper generic versions.

Prior to Bayh-Dole, the federal government kept the rights to inventions arising from federally financed research. In 1980, Bayh-Dole allowed researchers—typically, university scientists—to treat that those inventions as their own. At the same time, however, the federal government retained “ march-in rights” to assure that any federally financed invention is “available to the public on reasonable terms.” If it isn’t, the government can license the invention itself.

Since most drugs are developed in part with NIH funding, Bayh-Dole provides an instrument for restraining drug prices—at least in principle. Peter Arno and Michael Davis first laid out the idea of using Bayh-Dole to license drug manufacturers’ patents to generic competitors in a 2001 paper. “Unfortunately,” they observe in a related op-ed, “no one is enforcing it.”

That remains the case today. In 2013, the National Institutes of Health (NIH) rejected a petition asking the agency to exercise its march-in rights by saying that it “continues to [believe] that the extraordinary remedy of march-ins is not an appropriate means of controlling prices of drugs broadly available to physicians and patients.”

Maybe it’s an appropriate means, maybe it’s not. I don’t know. But is it legal?

Senators Bayh and Dole, for example, have said that the statute isn’t about controlling abusive pricing practices: “Nowhere in the text of the law are there any references to ‘reasonable price’ that should be dictated by the government. This omission was intentional.” Others have made the same claim at greater length.

One of Bayh’s former staff members, Joseph Allen, explains further that, when Bayh-Dole was enacted, the fear was that dominant companies might secure exclusive licenses for promising, NIH-funded university inventions—and then squelch inventions that might cannibalize their existing businesses. March-in rights enable the federal government to force universities to license their inventions to other companies that might develop them.

As a legal matter, however, the question isn’t what Congress was thinking when it passed Bayh-Dole. It’s what the statute that it enacted means. And on that front, CAP makes a powerful and straightforward argument that the federal government could conclude that a drug is “not available on reasonable terms” if its price is exorbitant. In contract negotiations, price is a term. Indeed, it is often the most important term. Why would you read a statute written like that to exclude any consideration of prices?

I don’t know that using march-in rights to slash the cost of high-priced drugs would be a good idea. But it looks to me like CAP’s proposal is on solid legal footing. Given CAP’s influence in the Clinton campaign, and the growing chorus of concerns associated with drug pricing, it’s worth keeping an eye on Bayh-Dole.

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About Nicholas Bagley

Nicholas Bagley is a Professor of Law at the University of Michigan Law School.